China services boom!

There seems to be a sudden, concerted push by the government to make it clear to the nation that the rise of China represents a huge opportunity for Australian services exporters. In his recent inaugural speech, new treasury head, Martin Parkinson, argued that the government should embrace this vision to help offset community anxiety about Dutch Disease:

We can highlight how the emergence of major countries in our region will see the gravity of world trade shift closer to our region. The ‘tyranny of distance’ from major markets that has for so long been a limiting factor on the expansion of Australian business will continue to shift in our favour.

And somewhat related, but less well understood, is the changing world economy will present opportunities for the broader Australian economy from the rise of the Asian middle class — a potentially very large market for our goods and services.

Trade Minister, Craig Emerson, is in China banging out the same message:

Figures released last week for manufacturing activity showed China’s economy was beginning to slow, shaking Australia’s stock market on the back of warnings about China from the Reserve Bank.

But Dr Emerson — who this week is on his third visit to China in six months — said that rather than focusing on “quarter by quarter movements” in the Chinese economy, Australia should focus on expanding trade relations beyond resources and into the services sector.

“There is a bit of hand-wringing, and it will dip, but from 10 per cent to what is still a very high number (the latest Five Year Plan has set a base line of 8 per cent annual growth). I think that probably people get a bit too anxious about an economic slowdown in China,” he said.

Dr Emerson said the focus should be on fresh opportunities for Australian business as China’s economy moved to a domestic demand and services model.

Dr Emerson cited the usual suspects – banks, tourism, education – as the great frontiers.

This rhetoric is most welcome, in my view. We’ve spent 15 years pretending Asia didn’t exist, except as some dropping off point for queue-jumping refugees or a port that takes our dirt.

And there is evidence that China is emerging as an export destination for Australian services. Below find a table of Australia’s services exports for the past three years:

China is now our number one services export destination. DFAT does not provide a break-up of the services trade by sector but in general, in 2009/2010, tourism and education made up 63% of the total $52.7 billion. At $18.5 billion, education made up 35%.

For China, the mix must different because Dr Emerson reckons half of last year’s total $6 billion was in tourism. An alternative explanation is that Dr Emerson is including Hong Kong figures.

Anyway, China is growing strongly as a services export market. Sadly, that growth has so far only managed to offset big declines in other markets with Australia’s overall service export levels up 5% in three years, well behind other exports and miles behind nominal GDP, showing that the sector is shrinking in proportion to the rest of the economy.

Fact is, that despite the upbeat rhetoric and clear growth in China, the contribution of Australia services exports to growth is shrinking. And let’s not forget that the figures I’m using do not include the last year, when the Australian dollar really strapped on the afterburners.

So, does it matter?

I think that it’s probably true, at least in theory, that the services sectors are better placed to weather Dutch Disease than manufacturing. Service industries are based on people and you can always rehire when the dollar falls and business returns. I’m not saying it’s easy but perhaps easier than having to rebuild a factory that has fled to a competitor in Vietnam.

But here we also run into the real problem. If service industries are about people-to-people links, then you need to understand who you’re dealing with, not to mention speak their language.

And that’s going backwards:

Major media has reported an “alarming” 22% decline in the number of Australian students studying Chinese, Indonesian, Japanese or Korean from kindergarten to year 12 between 2000 and 2008.

According to the Asia Education Foundation, the drop is “far worse than feared.”

University of Melbourne Asia Link chief executive, Jenny McGregor, confirmed that Asian languages and history appear to be falling out of favour among Australian students. In 2009, a mere 2% of year 12 history students chose to focus on our closest neighbours – compared to 65% and 19% studying German and Russian history respectively. Worryingly, only 250 Australian students with non-Chinese heritage chose to study Mandarin – the most widely-spoken language in the world.

I repeat. 250 honky students chose to study Mandarin in 2009. If the boom does come, the rest of us may have to suffer higher interest rates because those 250 kids are going to demand astronomical wages.

The collapse in Asian language learning is largely but not only the result of pulled funding. It is also 15 years of Liberal and more recently Labor governments that have bashed any curiosity in our neighbourhood with Don Bradman and other myths.

That’s why the swing in rhetoric is welcome, though it’s pretty paltry so far. If Labor is serious about this it needs a vision, not necessarily so grand and politically poisonous as Keating’s “Asian engagement”. But something a bit more serious than the odd throwaway line.

And until that vision is backed up by some renewal of funding for Asian studies, that’s all it will be.

David Llewellyn-Smith

Comments

  1. Dr Emerson cited the usual suspects – banks, tourism, education – as the great frontiers.

    And wine! You forgot wine. Wine is going gangbusters.

    Recent data from the Bureau of Statistics are chilling: in the March quarter domestic wine sales fell at the fastest annual rate since 1990 while sales of imported wines rose by 2.2 per cent to 12.7 million litres.

    Drinkers spent $85.1 million on imported wine during the quarter, up 1.4 per cent. In just one decade, imported wine has risen from 3 to 15 per cent of domestic wine sales.

    Damn that carbon tax.

  2. Your take on the education situation is certainly revealing the current trends.
    It’s difficult to see us expanding our education services. The decline in standards is immense. I have a step grand-daughter currently entering Year 11 at a reasonably good State High School in Sydney. She is originally from Europe so has a keen interest in History etc.
    For grade 12 she does not require any Maths, Science or Foreign Language! There is not a lot of mental discipline. As she says herself, through all the years through to Grade 10, the only history she has been taught is Aboriginal Studies.
    Our education system REQUIRES almost no mental discipline. I know that students may CHOOSE the disciplines. The fact is that our education system is now a sort of social culture. The evidence is that far too few are doing taking on Maths and Science and further it looks doubtful that we now have either the teachers or the facilities to provide such education.
    How will the Chinese benefit by studying here?

    Tourism? Hmmmmm we sell space and sunshine. The Chinese tend to get lonely if they are not in a crowded noisy restaurant. In addition they do not like sunshine as this tends to make their skin go dark and they would then seem like a manual worker. In the world’s great socialist worker’s paradise this is a big ‘no-no’ socially.
    However I guess we would pick up a few tourists despite the fierce competition from the rest of SE Asia.

    Banks????Hmmmmmmmmmmmmmmmmmmm

  3. I’m not surprised that few kids are learning mandarin at school. Australia now has many thousands of native Mandarin speakers and I doubt that there’s much demand for more. Many of those Mandarin speakers also have cultural knowledge and other qualifications (MBAs, CPAs) that they can use if they decide to go into international business. Some poor white kid who learned basic Mandarin at high school will have to work very hard against that.

      • Well he has a point, all the gazillion asian students who came here and studied hair dressing to get a visa – all native speakers, as long as they can speak some engrish and maybe do a business course they’d kick our white boys ass! Or they can get a job as an interpeter and theyre set.

        Mandarin is too hard to just pick up especially in late highschool (with our lame-arse teaching, my japanese teacher in year 10 was a french woman who was 2 lessons ahead of the class in the japanese textbook!)

        Really you’d have to start learning it in primary school, early, next to english. Especially if you want them to be able to write their name in mandarin too!! Speaking is only half of it.

  4. Sandgroper Sceptic

    Learning Mandarin should have been and should continue to be a top priority. One of the things that Kevin Rudd should really have addressed with his Education Revolution instead of building tiny canteens. Why do schools keep offering French/Italian and not Mandarin?

    Phil language is the key to understanding culture. Look at Europe they all learn 2 or 3 languages.

    Disclosure: my 5 year old is about to start lessons in Mandarin.

    • I’m having similar thoughts about the little Prince/Princess (due October) – getting them a start through language is a must – it will be the Asian century, and I would not be surprised if Singapore/Hong Kong is a major emigration point for Mandarin-speaking Aussies. (if not now)

      Jim Rogers had much to say about this – he moved to Singapore with his two little girls and has instructed their Chinese nanny only to speak Mandarin to them.

      Kids can learn two languages at a very early age – its a shame all I know is a smattering of French (to order a croissant) and Italian (to order a coffee or pasta)…..and that will be about it!

      • Teaching them young is the key. The vast majority of real brain development happens in those early years. At that age children are like sponges and if exposed enough can learn multiple languages very quickly. Studies also show those who are fluent in other languages tend to be more intelligent.

        As an example when my parents sent me off to pre-school (year 1) i didn’t speak a lick of English as it wasn’t spoken at home [at all]. My mother tells me i was speaking at the level of the Aussie kids within ONE month.

        Though i am fluent in two languages i regret not trying to learn another throughout high school (difficult as it may have been). I now wish my parents forced me to learn more languages when i was younger.

        My advice, force it on your children even if they don’t like it (they more than likely will). They will thank you when they are older and multi-lingual.

      • Times they are a changing, when i was in grade school, it was french, middle school, Spanish was the go,(US), and Latin in year 9; probably the most useful in the anglo world. My kids in grade school were encouraged to study Japanese back in the mid-90’s as they were poised to take over the world financially, (remember when the RE in Tokyo was worth more than all the US?), now it’s Mandarin. Still trying to figure out what the language of the New World Order will be; “Manderish”? or “Engldarin”?

    • Actually, I know the value of speaking a second language; I speak Spanish. (I used to speak it quite well, but I haven’t used it often enough lately.)

      However, what’s being said here isn’t “a second language is useful”; it’s: “our children should learn an Asian language, preferably Mandarin.”

      Anybody who was around the 1970s probably remembers the same thing being said about Japanese and Indonesian. However, the predicted demand for those languages never eventuated, partly because we acquired native speakers through migration (the usual way we obtain our specialist workers), but mostly because (a) English is commonly spoken in international business, and (b) tourists tend to arrive in groups with native-speaking guides and don’t need to speak to us.

  5. Export services…well I guess we’ll have to…it’s not like we make, produce or provide anything else of value is it?

    We set out a few decades ago to transform Australia in to a services based economy, and now that we’ve done it, we haven’t got much more than metals and minerals, primary produce and a small grab bag of other highly specialised but marginal wigets to sell.

    It amazes me to think that we actually thought that we could continue to build wealth by selling services to each other, whilst the real ‘creation’ of wealth, through the value-adding of resources was gifted to other nations.

    In spite a small number of marginal benefits, globalisation has as much appeal as a dose of the clap. Perhaps if we hadn’t become so ‘familiar’ with Lady Liberty, we’d have avoided at least some of the the pain we have headed out way.

    Interestingly, from an Asian language point of view, I agree with you Phil, we have plenty of migrants who are far more suitable (language knowledge and cultural understanding), and much more motivated (they actually want to work hard) to obtain these roles than ever. Perhaps, as a nation, we have out-foxed ourselves on this one.

  6. …and rhetoric it is likely to remain.

    Treasury have said Australia will move towards it comparative advantage, resources and services. Truth is, only in resources does Australia have natural comparative advantage. Pretty hard to see how an English speaking country of just over 20 million is going to impact services markets in a region of a couple of billion, millions are English speakers, millions more studying english, millions undertaking tertiary education – instilled with a strong belief that hard work and endeavour will pay off. Education services will lose their edge as these countries further develop their own systems and as for technical, engineering and architectural services, sheer weight of numbers will ensure that Australian companies are not significant unless exceptional (China seems to be doing OK in the technical and finance related sectors, wouldn’t you say). I fear we’re being sold a turkey.

    This brochure shows a breakdown of export including services for 2009:
    http://203.6.168.90/publications/trade/trade_at_a_glance_2010.pdf

    And this an overview of 2010 Aus Trade numbers.
    http://www.dfat.gov.au/geo/fs/aust.pdf

    http://www.theage.com.au/business/services-sector-strategy-cant-save-us-20101024-16z6k.html

  7. The reason most school students learn about the Russian and the French revolutions, not China’s, is because that’s all their 70s-era school teachers can teach. Until we invest more in Asian studies at the graduate and post-graduate level, chances are we won’t get the trickle-down to secondary schools. I know this is a bit of a chicken and egg argument, but perhaps this is where some tax dollars could be spent. Maybe we should launch a national scholarships program?

  8. If there really is an opportunity to build a substantial export trade in services to Asia, then the recent moves that have discouraged Asian students to study here would (at face value) appear short sighted in the extreme.
    While more Australian students should be studying Chinese and Indian languages…we appear to currently have (had) an opportunity to build our capacity in this area relatively cheaply by encouraging students from these countries to study here, and encouraging a healthy proportion of them to migrate after completion of their studies. Even those that return home would retain ties with the country that would aid in developing trade in services.
    I’m not suggesting we need more Indian hairdressers or catering experts studying here, but a targeted campaign to build up our numbers of bilingual people who will be able to provide the services required by the countries of origin in the future would appear sensible. Presumably the professions will largely be in engineering and the sciences, but of course, any decision by the brightest students about where to study is partly financial AND partly about the reputation of the university. I suspect our universities are among the most expensive relative to their international ranking, with the AUD$ not helping…..perhaps we should be offering scholarships to the brightest international students?

  9. Again, at the risk of repeating myself, Treasury, Emerson, Swannie, Gittins! and whoever else has been talking up this export-services-to-Asia nonsense are completely detached from reality.

    All our potential services exports are currently being smashed by the dollar

    I just don’t get these guys. One minute they’re saying that non-resource exporters have to shrink to “make room” for the mining sector, and the next they’re saying services exports are our future in the Asian Century.

    Well I’m a services exporter — I even sell the odd thing to Asia — and I’m not happy Julia!

  10. Jumping jack flash

    Thank you, all food for thought for my new children. I learnt Japanese when I was in early high-school because of the 80’s and 90’s when they were buying us up.

    I haven’t used it since then.

    I’ve got my 2 year old enrolled in music and he loves it, but maybe I should find a mandarin teacher too.

  11. I’m wondering why, given the choice, Chinese would hire non Chinese over Chinese.

    • 8==!!!!!>==O - - - __

      Exactly.

      Only due to lack of skills/knowledge or when a foreign contribution i.e. investment, can add value.

        • 8==!!!!!>==O - - - __

          Two years ago a friend of mine was invited to China via a local product distributor to teach a Chinese company how skills can be better applied to building apartments.

          While he was there, the Chinese boss treated him like royalty (much to the dismay of the company who provided him the contact/opportunity). 5-star everything, etc…

          However when his job was done, it was goodbye. They kept his knowledge and skills which they can ‘build’ on, he gained a nice photo album and some extra cash.